What are the benefits of declaring trading income as business income?
The benefits of declaring trading income as business income include:
1. Claiming expenses: You can claim all expenses incurred while trading as part of your business. This includes brokerage charges, other statutory charges, STT, and other costs incurred while trading such as internet charges, mobile bills, data subscriptions, newspapers, depreciation of computers/ electronics, research reports, books, advisory, office rent, interest paid on borrowed capital used for trading, etc.
2. Off-setting losses against gains: Losses incurred on any non-speculative F&O trading in a financial year can be set-off against any income (other than salary).
For example, Mr. Raj earns income (from rent, interest, etc., excluding salary) of Rs. 14 lakhs and incurs a loss of Rs. 8 lakhs from non-speculative trading during a financial year. Hence after offsetting your loss, the tax will be applicable on Rs. 6 lakhs (14 lakhs - 8 lakhs).
3. Carrying forward F&O losses: If you file your Income Tax Returns (ITR) by its due date, and have incurred a net loss in a financial year (non-speculative F&O + any income other than salary), such losses can be carried forward for the next 8 years. During these 8 years, losses can be set-off against any other gain from non-speculative business income.
For example, Mr. Vineeth incurs a loss of Rs. 8 lakhs from F&O trading in FY 2018-19 and declares this in his ITR for the year. As a result, he will be able to carry this loss forward for 8 years. During FY 2019-20, he makes a profit of Rs. 12 lakhs. He can off-set the previous year's loss against this profit and hence will be liable to pay tax on Rs. 4 lakhs (12 lakhs - 8 lakhs).
4. Carrying forward intraday equity losses: Speculative/ intraday equity trading losses can only be set-off against other speculative gains. Speculative losses can be carried forward for 4 years, provided you file your ITR by the due date.
For example, Ms. Sruthi incurs a loss of Rs. 5 lakhs during a financial year from intraday equity trading. This can only be set-off against profits from intraday trading, and not against any other business income. Here, she can carry this loss forward for 4 years and set them off against speculative earnings.
* You can partially off-set losses incurred. * Losses from intraday equity trading (speculative) cannot be set off against income from F&O trading (non-speculative).
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